Tuesday, May 14, 2013

Documents Needed for Mortgage Preapproval

Documents Needed for Mortgage Preapproval

Before going house hunting, you can request that your lender preapprove your loan, and not just prequalify it. Loan preapproval requires more up-front documentation from you and takes a little more time initially. Loan preapproval requires the lender's underwriter (the person responsible for saying “yes” or “no”) to issue an approval subject to finding an acceptable house and meeting a number of conditions. A seller’s real estate agent understands that an offer with a preapproved loan is farther along in the loan process than a prequalified loan, and may take the preapproved offer more seriously.

Mortgage Application and Credit Report

The loan officer requires you to complete a mortgage application before anything else happens. This application requires you to disclose your name, addresses for two years, birth date, social security number and work history for the last two years, as well as information about your finances. Preapprovals require a credit report for all borrowers. The loan officer uses the information provided on the mortgage application to obtain a credit report with all three credit bureaus. This report is analyzed by the lender's underwriter to ensure the credit guidelines are met. The credit report includes the credit scores. Credit score requirements depend on the mortgage program applied for. The lender also looks at your payment history and checks to see if there are any major credit issues. Recent bankruptcy, foreclosure or unpaid tax liens are reasons to decline a loan.

Pay Stubs

If you are employed, the lender will require recent pay stubs and sometimes W-2s for the most recent one or two years. The lenders calculate your base income and determine if any overtime, bonus or commissions can be used to qualify for the loan. Lenders may also require a two-year history of receiving commissions, overtime or bonuses before that income can be used to prequalify for the loan.

Tax Returns

Self-employed borrowers or borrowers with rental property who claim any unreimbursed business expenses may be required to provide tax returns for one or two years. Many types of non-employment income, such as interest and dividends, retirement income and social security income, require tax returns as well. If you own a company that files corporate tax returns, you may have to provide any corporate returns, including any K-1s, income documents like a W-2 or 1099 that are issued to you if your company is a partnership or S-Corporation).

Bank Statements

You will be required to provide documentation of where the down payment and closing costs are coming from. The most common source documentation is bank statements or investment statements. Many lenders do not allow cash on hand (money kept outside of a banking institution) to be used for a down payment or closing costs. If a family member, company or non-profit is giving you a gift or grant for the down payment, you may be required to provide a gift letter and proof that the donor has the funds to give. Usually one or two months' bank statements are required.

Additional Documentation

Depending on what your documentation shows, you may have to provide additional information. Teachers are often asked to provide their employment contract, since they can be paid over 9, 10 or 12 months, making calculating the income from a pay stub alone difficult. In addition, lenders may ask you to explain large non-payroll deposits, minor negative items on your credit report or a name variance. This is common for women who change their names when they marry and borrowers who share a name with a parent.


The loan officer and mortgage lender who underwrite your loan, if they are separate entities, are both required to provide you with documentation when you apply for a preapproval. Both the loan officer and lender will provide you with a Good-Faith-Estimate, or GFE. This document explains the costs and terms of the loan you have applied and been approved for. You will also be provided a copy of your application and many disclosures, including notification of your right to a copy of the appraisal, servicing disclosure statement (discloses how many loans the company keeps or sells) and the Affiliated Business Arrangement (explains what third-party companies are providing you services). The loan officer has three business days from your application to provide you with a GFE, and the lender has three business days from when it receives the application to provide you with a GFE as well. Most changes to your loan amount, rate or terms will require a new GFE be provided.

About the Author

David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.

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